Police are believed to be ready to abandon the hunt for two data discs containing the personal details of 25million Britons.

Scotland Yard plans to end the £500,000 search for the missing HM Revenue & Customs CDs before Christmas.

The discs, containing the personal and banking details of seven million families claiming Child Benefit, disappeared in October after a junior official in HMRC's Tyne and Wear offices posted them to the National Audit Office in London.

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Despite a massive hunt for the missing discs - including a search of offices, computers and even a rubbish tip - nothing has turned up. Even the offer of a £20,000 reward has proved fruitless.

Metropolitan Police chiefs believe there is little chance of the discs appearing in the short term and are set to conclude that it is unjustifiable to continue to assign 32 detectives to the case.

News that the search is being scaled down comes as Kieran Poynter, the PricewaterhouseCoopers chairman, delivered an interim report on the scandal to Alistair Darling.

The Chancellor will tell MPs on Monday that the Government plans to introduce urgent measures to reduce the risk of further blunders in the future.

But according to Treasury insiders, Mr Darling will not be in a position to offer a definitive explanation as to how the fiasco occurred.

He will also announce that banks, Whitehall departments and law enforcement agencies have developed a computer early-warning system to prevent any of the information on the CDs being used by criminal gangs for identity fraud.

Philip Hammond, Shadow Chief Secretary to the Treasury, said: "Calling off the police search is an admission the missing discs will never be found.

"The priorities must be firstly to protect the individuals whose personal details have been put at risk, and secondly to ensure that such a catastrophe never occurs again."

A Met spokesman said reports of the investigation being scaled back were "pure speculation". A spokesman for HMRC declined to comment.